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Imagine a world and a society in which 500 people own everything – absolutely everything. These blessed few live in the Citadel, a mighty bastion of comfort with fortified and impregnable walls. The walls surround the Citadelians’ collections of lavish homes, spacious and opulent gardens, gorgeous pleasure arenas, and well-outfitted factories and workhouses.

Yes, factories and workhouses. These mighty 500 pay 100,000 other people to do various kinds of work for them. The work consists in transforming some of the resources and goods belonging to the 500 owners into a variety of consumable products, and also in using some of those products along with other raw materials to perform sundry services for the 500, services that include the production of splendid works of art and intellect.

Follow up:

The labors of the 100,000 workers yield more delights than can possibly be enjoyed by the 500 owners as the latter live out their luxurious but all-too-finite lives. The result is that the 500 owners in the Citadel are absolutely sated. They have no need to hire any other people to do any additional work. They already possess riches beyond the limits of enjoyment and desire.

An Economic Fortress

The industry of the 100,000 workers also produces a surplus beyond what is needed to meet the quenched consumption needs of the 500 owners, and that surplus goes entirely to providing a few goods and services for the 100,000 workers themselves. That is how the workers are paid – with the products of their own labor. The workers are permitted to produce just enough extra for themselves to make it worthwhile for them to do the work offered by the owners rather than remain unemployed outside the Citadel walls.

And there indeed are millions and millions of people in Citadelia outside those impassable walls, living on the land owned by the 500. Yet all but the 500 owners and the 100,000 laborers inside the Citadel have no significant employment at all, and their lives are utterly impoverished. The owners permit the naked millions to forage for subsistence in the vast plains and forests that belong to the owners and lie outside the walls of their compound, and they also permit the wanderers to build rude shelters from dead grasses and fallen twigs.

The Frugal Rich

But that is all they permit. Despite their sumptuous and sybaritic lifestyle, the owners are frugal savers of their unused property. They are determined to preserve and maintain possession of everything they own, including all of those assets that are not in use for their own present consumption or for the present payment of their workers. They are determined to keep all of their superabundant property in their own possession, in perpetuity, to be handed on down to their posterity. Also, the owners are wary of permitting production lest the rude millions improve their material conditions and powers enough to become threats to the power of the owners and rulers of the Citadel. They enforce their strict property regime with vigor and extreme prejudice, and do not permit the unhappy millions to engage in any significant productive transformations of the vast unexploited resources beyond the Citadel walls.

Laser Blasters

The system is frozen in place because the owners possess a monopoly of force – a monopoly not just in theory, but in unchallengeable practice. The owners possess a battery of laser blasters they built in an earlier period, and that are sufficiently powerful to discipline the 100,000 workers and keep them under the owners’ control. The laser blasters are installed throughout the Citadel along with surveillance cameras, and are operated remotely by codes that only the owners know. If a worker becomes unruly or insubordinate, she is summarily blasted into oblivion with a short burst from one of these potent armaments. And any worker who shows the smallest hints of inordinate curiosity about the workings of the laser blasters, or a budding interest in using the tools and raw materials of the workhouses to design weapons of any kind, is dispatched just as expeditiously.

Discipline for the Masses

Among the jobs performed by the 100,000 workers is the task of shooting, burning, laser blasting or otherwise punishing any of the millions of unemployed humans who turn themselves into pests and threaten the property of the owners. The owners send frequent patrols of stolid and reliable workers outside the walls to hunt, terrify and discipline the nomads. They also propel unmanned flying machines out beyond the Citadel walls and into the exterior wilds to survey the activities of the wanderers, and to annihilate them on the slightest suspicion of threatening activity, or for so much as a gesture that breaches the ordained demeanor of prostrate obedience.

Aspirations of the Masses

The millions of vagrant foragers outside those imposing walls, wandering unclothed and stupefied through the wilderness, would love to possess lives like those of the 100,000 lucky workers, about whose more prosperous existence they have heard many stories and legends. When the owners are in need of new workers, they issue a call throughout the land. All eagerly apply for consideration. Everyone wants to be selected, and the owners can always choose from the very strongest and brightest among the nomads to find the choicest workers.

What is this System?

Thus is the tale of Citadelia. I now have some questions for theoretical economists. How would they describe the economic conditions of Citadelia? More specifically:

Would economists classify the conditions of Citadelia as a depression?

Are the markets in Citadelia routinely clearing?

Is Citadelia an economy in equilibrium?

Could the mass unemployment of Citadelia persist for a very long time?

Is this Really a Fairy Tale?

And here is a question for the rest of us: Could we be living in Citadelia? Obviously, the conditions of the Citadelia story are extreme and fantastic. But in our world right now many millions of people – particularly young people – are involuntarily unemployed. The plague of unemployment is devastating large parts of Europe, The United States, the Middle East and Africa. Could it be that a chief reason for this persistent joblessness is that the owners of these regions and their resources, having sated most of their own personal desires, have no urgent need to employ more people to produce more goods and services, or to generate more profits? And could it be that the unemployed do not themselves own enough of the world’s property to create their own opportunities for productive work? And even if the owners of the world’s property are not exactly sated, might there be degrees of satiety such that when that degree is high enough, and when wealth is concentrated in too few hands, these circumstances have the effect of stifling economic development?

Two Solutions

Notice that the unemployment in Citadelia could be relieved in two ways: If the owners were less exclusively concerned about their own well-being and property interests, and were more concerned about the well-being of others, then they might simply give away most of the land outside the walls, and liberate the natural industry of the foragers to begin improving that land, cultivating it, mining it and building on it.

Also, if the owners were insatiable, so that no matter how much they had they always wanted more, then they would always be providing increasing amounts of work. They might gradually expand the walls of the Citadel over time, incorporating by stages more and more of the hinterlands into their enclosed civilization.

But the combination of the owners’ satiety with their fixed determination to hold all of the property that is already theirs, works to prevent Citadelia from growing.

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Excellent allegory of an industrially mature high productivity capitalist economy!

I have written this before, but David Ricardo (!) wrote exactly the same thing in his Principles of Political Economy and Taxation (published 1817), in Ch XXXI On Machinery. Ricardo essentially admits that the Luddites were right! That the use of machinery DOES damage the interests of labor in favor of capital. Ricardo writes,

"...although I am not aware that I have ever published anything respecting machinery which it is necessary for me to retract, yet I have in other ways given my support to doctrines which I now think erroneous;...

...If, by improved machinery, with the employment of the same quantity of labor, the quantity of stockings could be quadrupled, and the demand for stockings were only doubled, some laborers would necessarily be discharged from the stocking trade; but as the capital which employed them was still in being, and as it was the interest of those who had it to employ it productively, it appeared to me that it would be employed on the production of some other commodity useful to the society, for which there could not fail to be a demand; for I was, and am, deeply impressed with the truth of the observation of Adam Smith, that "the desire for food is limited in every man by the narrow capacity of the human stomach, but the desire of the conveniences and ornaments of building, dress, equipage, and household furniture, seems to have no limit or certain boundary."

"As then, it appeared to me that there would be the same demand for labor as before, and that wages would be no lower, I thought that the laboring class would, equally with the other classes, participate in the advantage, from the general cheapness of commodities arising from the use of machinery.

These were my opinions, and they continued unaltered, as far as regard
the landlord and capitalist; but I am convinced that the substitution of machinery for human labor is often very injurious to the interest of the class of laborers.

My mistake arose from the supposition that whenever the net income of a society increased, its gross income would also increase; I now, however, see reasons to be satisfied that the one fund, from which landlords and capitalists derive their revenue, may increase, while the other, that upon which the laboring class mainly depend, may diminish, and therefore it follows, if I am right, that the same cause which may increase the net revenue of the country may at the same time render the population redundant, and deteriorate the condition of the
laborer."

As Kumhof and Ranciere describe in Inequality, Leverage and Crises, and as everybody in the blogosphere knows by now, virtually all of the benefits of the productivity gains of the past 4 decades (globalization era) have flowed to capital. It is only because "the
redundant population" has been able to massively indebt themselves to continue consuming that the gross revenue of the US has not already plummeted, even while the net revenue (i.e. "profits" and capital gains) has multiplied.

Current US debt, including household and mortgage debt + government debt, is, what, $50-60 trillion? Remove that debt-financed consumption from the past 4 decades of US GDP and what do you see? A declining GDP, right? Meanwhile the incomes of the top 5% (in K & R's reckoning, "the investor class") have skyrocketed to Citadelian heights.

Which demonstrates Ricardo's point. An economy's gross revenue (GDP) can shrink even while its net revenue (profits to the 5%) increases. Who needs laborers producing more stuff when you're already rolling in dough? So all the productivity gains have flowed to capital and "at the same time rendered the population redundant". If the formerly middle class of America feels forgotten and overlooked and ignored by the economic and political Citadelians, it is simply because from the perspective of the people who count, they have become dead weight. So how does it feel, 100s of millions of Americans, to be "redundant"?

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